A shocking 69% of Americans have under $1,000 in savings, according to a 2019 GOBankingRates survey. That lack of emergency funds leaves people ill-prepared for financial emergencies.
Right now, many people are experiencing tremendous income insecurity since the novel coronavirus (COVID-19) was declared a worldwide pandemic in March 2020. Many people have lost jobs, been furloughed or taken pay cuts as a result.
To make sure you’re financially covered in situations as extreme as this or for even less extreme situations like if you need to make a home repair, it’s a good idea to have a comfortable savings account that’s earmarked for emergencies. To help you reach this goal, follow this step-by-step guide to create an emergency fund.
Last updated: May 13, 2020
Plan For 3 to 6 Months of Savings
Whether you’re just starting to save money now or you’ve been saving for some time, consider setting a minimum goal of three to six months’ worth of emergency funds to cover as many expenses as possible. From mortgage or rent to food and utilities, your monthly expenses add up, and it takes time to build up that extra cash.
Assess Your Spending
You can’t start saving until you know how much money you spend and, more importantly, what you spend it on. Write down your monthly income, then list everything on which you spend money during the month. Include essential recurring expenses like your mortgage or rent payment and child care.
Don’t forget the fun stuff — like how much goes toward eating out, catching the latest movie or keeping up with the latest fashion trend. Optional items and impulse buys are prime spots from which you can divert money into your rainy day fund.
Use an Interest- or Dividend-Bearing Account for Your Savings
Emergency cash should be liquid in case you need to access it. Don’t put the money at risk because the possibility of losing it negates the purpose of building up a reliable emergency money source.
You won’t want to put your emergency savings in the stock market, but instead, put the money in a high-yield, interest- or dividend-bearing account, and watch your money grow safely.
PenFed’s Premium Online Savings account offers a higher annual percentage yield at 1.25%1, so that you can earn even more money as you put your funds away into an emergency savings account. With just a $5 minimum to open this savings account, you don’t need much to start increasing your savings as the funds sit in your account and grow until you need them.
1APY (annual percentage yield) is accurate as of May 12, 2020, and is subject to change at any time. Fees may reduce earnings. Federally insured by NCUA.
Make a Budget
You can’t save money if you don’t control your spending and free up enough cash to divert to your emergency fund. If you’re asking yourself how to save money on a tight budget, the answer starts with a review of your income and cutting unnecessary expenses.
Go through your list of expenses and ask yourself:
Do you need all the extra movie channels on your television streaming package?
Could you live without that fancy latte a couple of days a week?
Are you allowing room for occasional necessary expenses like new car tires?
Set Reasonable Goals
Financial goals are different for everyone. If you have a mortgage, kids, auto loans or even a reasonably fun social life, saving $10,000 sounds about as feasible as climbing Mt. Everest. But here’s the thing: No one climbs Mount Everest overnight. They get to Base Camp, then Camp I and so on. Weeks later, they’re on the summit.
Conquering your emergency fund goal should work the same way. Make $10,000 your ultimate goal, and strive to reach it in smaller steps, even if you’re just saving $20 a month to start.
Once you’ve come up with a reasonable budget, use mobile banking and budgeting apps to keep yourself on track.
It’s easy to overspend when you whip out your credit card because you don’t see the total damages until your statement arrives at the end of the month. Your budget provides a list of expenses with which to track your outflow. When you visit a store to purchase budgeted items, bring just enough cash for the planned purchase. This keeps you on budget and preserves your emergency cash stash by eliminating the ability to add just a few more items.
Pay Yourself Like a Bill
Treat your emergency fund contribution with the same respect that you handle your housing or utility payments. Take things out of your hands entirely and ensure that money from every paycheck goes into the fund by setting up direct deposit.
Many employers can split your deposit between two accounts so the proper amount goes into your rainy day fund, with the rest going into the account you use to pay the bills. This eliminates the temptation to skip that fund contribution “just this once.” It also helps you save money fast as opposed to adding to your fund sporadically.
And Automate Other Savings To Yourself
If you have to stop and think about saving money, you are probably far less likely to save it than if you automate your savings deduction.
If you can’t have some of your paycheck automatically deposited to your savings account, then you should know that most banks make it easy to set up ongoing transfers online that you can modify as needed. Once you automate it, you can learn to budget around that money while growing your savings.
Invest In Long-Term CDs
Investing money can be risky, particularly if that money is invested in funds that rise and fall with the stock market. Since COVID-19 struck, the U.S. stock market has taken a significant hit. However, putting your money into something like a certificate of deposit (CD), which has a fixed interest rate for a set period of time, is a sensible and risk-free way to save money so long as you don’t need immediate access to it.
Don’t Delay Your Emergency Fund To Pay Off Credit Card Debt Instead
Saving money in an emergency fund and paying off credit card debt are two financial strategies that can peacefully coexist. Don’t delay starting your rainy day fund while paying off your credit cards.
Instead, use a strategy like “snowballing.” Pay off the card with the smallest balance first, then add that money to the payment for the next-smallest balance until all of your cards are paid in full, or channel as much money as possible to the card with the highest interest rate.
Pay Off Credit Card Debt
It may sound counter-intuitive to save money by spending it but it actually makes perfect sense; when you carry credit card debt, you’re also racking up interest, which is money you’ll never get back. Instead, as you also work on your savings, pay off your debt. Once the debt is gone, not only will you have back your monthly payments, but you’ll also be saving on interest.
After You Pay Off Debt, Add That Money Saved To Your Fund Every Month
If you’re able to pay off credit cards and keep them at a zero balance, put what you would have paid on them into your emergency fund instead. You won’t miss that money since it’s already figured into the budget.
And to make the most of those extra funds, add them to an account like PenFed’s Premium Online Savings account, which has a higher-than-average APY. PenFed’s savings account also doesn’t have a monthly maintenance fee so you will keep more of your money with you as it grows with little effort on your end.
Tap Other Emergency Services First When Needing Money
Sometimes, you face emergencies for which outside assistance is available. For example, the Federal Emergency Management Agency assisted victims of Hurricanes Irma and Harvey. This type of aid varies and might come from nonprofits, like help from the Red Cross in case of a house fire.
You can always Google for the type of assistance you need, whether it’s related to food, housing, medical or something else.
Save Your Raise
While few people may be seeing raises right now in the time of the pandemic, things will eventually go back to normal. If you get a raise, consider investing a significant portion of it in an emergency fund instead of adapting to the increase. A CNBC finance expert recommends you save at least 33% of your raise. As an example, if your raise equals $5,000, you’d save $1,650 of it.
Save Any Other Unexpected Money
Life has a not-so-funny way of offering up more unexpected expenses — car breakdowns, lost cellphones, teenagers — than unexpected income. But there is the occasional greenback-filled birthday card or bonus from work. When those come along, put as much as possible right into your emergency fund.
You don’t have to squirrel it all away, but adding the majority to your savings can help you build your rainy day fund quickly.
Don’t Casually Tap Into Your Rainy Day Fund
Your emergency savings fund is just that — savings for emergencies. It’s important that you leave it alone until you’re really in an emergency and don’t have any smart alternatives.
It might be tempting to tap into it for a nice vacation or another big life event, but you’ll be happy you didn’t when a real emergency hits.
Take Out a Loan for Nonemergency Expenses
When your old clunker dies, it feels like an emergency. But, it’s better to take out a car loan for the replacement vehicle — especially if you can find a low-interest loan. The same goes for home repairs or upgrades — which could be financed with a home equity loan — and college expenses that are eligible for a low-interest student loan.
However, when you’re looking for emergency loans, bad credit might lead you to consider options like payday loans. Beware of taking out these high-interest emergency cash loans, as they might have interest rates of almost 400% when calculated annually. Avoid these emergency loans, and stick to options with reasonable interest rates.
Don’t Dip Into Your Fund Because You Lost Your Job
Losing your job probably seems like the right time to dip into your emergency fund. But think twice before you do. You should first consider applying for unemployment. You can also see about picking up some gig work while looking and applying for other jobs.
Sign Up For Automatic Increases in Contributions
Whether you contribute to a savings account or a 401(k), some of these allow for what is known as an automatic increase, which takes place annually. If you sign up for this, every year the amount that is deducted from your paycheck or checking account and put toward savings will increase, often by a very small amount, such as 1% but that amount adds up over time.
Take Coupons Seriously
Coupons may save you more money than you think. If you tend to ignore the flyers that come in your newspaper for sales and coupon offers or don’t take advantage of discounts, you are missing out on opportunities to save money that you could put into your emergency fund. Take advantage of coupon apps and sites, such as Ibotta and Groupon, as well.
Take a Temporary Gig
While few people have the luxury of taking on a second job to earn more money and many are striving to hold onto the ones they have in the COVID-19 crisis, the gig economy is still very much alive. Work like this often allows workers to set their own schedule, pick and choose gigs that work for them and other flexibility that might enable workers to earn a little extra rainy day cash. Of course, you have to remember to put that extra money aside.
Seek To Sell
Whether you’re planning to pad your emergency fund for the future or are in a pinch right now due to COVID-19, consider what items you might have on hand that you could sell for quick cash. From your old car that you aren’t using to clothing in good condition to electronics and appliances, many people prefer to purchase used items for their price point. Some places to sell include Craigslist, Facebook Marketplace, Fulfillment by Amazon and eBay.
Revise Your Budget
Every so often, you should revise your budget because extra money you could be saving for an emergency may be sitting in plain sight in your current expenditures. Revising your budget to cut back on expenses can free up that money to be put away for a time when you’ll need it most. You may not think you can cut corners, but there are always places to look, from cable and internet packages to eating out.
Harry Hines Boulevard in northwest Dallas is a “track,” a place where prostitution is, at least in normal times, visible and available. It’s a wide, treeless expanse of concrete, low-slung buildings, and neon signs. On a Saturday in early August, a nearly full moon glowed in the southeastern sky. A couple of strip clubs had reopened and, judging from the parking lots, were doing good business. Outside of one, a doorman stood wearing a surgical mask.
The pandemic hurt strip clubs like those on Harry Hines Boulevard, and it also put a crimp on prostitution generally. The Dallas Police Department (DPD) reported that cases of johns “purchasing prostitution” dropped 63 percent during the first half of 2020 compared with the same period in 2019. Human trafficking reports dropped by 39 percent. “COVID has definitely had an impact,” said Maj. John Madison of DPD’s vice unit.
But the pandemic effect has not been all good. Harmony Grillo, founder of Treasures, a California-based ministry to sex trafficking victims, said traffickers are forcing some women to do more porn webcamming “to meet the increased demand that’s created by those in quarantine.” Carol Wiley, director of A Way Out, a similar program in Tennessee, said fewer johns may be renting women face to face, but she fears that “violence toward the women [by traffickers] increases.”
Some of the heaviest and least-anticipated impacts of the pandemic have fallen on victims of sex trafficking who had already escaped the life. One such victim—call her Ava, because she has legitimate fear of her trafficker tracking her down—was recovering from three years of being sex trafficked when the pandemic hit.
Ava, 24, escaped her trafficker in 2018. She built a relationship with God and overcame deep-rooted social anxieties. But the pandemic shutdown took away much of the community she had built since escaping prostitution. In-person worship services at her church in Fort Worth stopped. Small groups she attended on issues from emotional support to financial coaching could no longer meet.
Ava was living in a house run by Valiant Hearts, a Texas-based group that helps women escape the sex industry. As the pandemic lockdown continued, house parent Tiffany Kiser noticed that Ava had lost the optimism she’d gained since being in the program. She stayed in her room and refused to talk about what was bothering her.
In normal times, Valiant Hearts provides women with choices, something victims lose when they are trafficked: To appear controlling risks having a victim equate you with her trafficker. But Ava was at a critical point in her healing, one that called for an unorthodox approach. Kiser and Emily Chavez, Valiant Hearts’ program director, demanded that Ava sit down with them. When she did, her hands shook and her face looked as if a year and a half of therapy had completely unwound. Ava said she couldn’t explain how she felt or why. “Just start talking,” Chavez said.
SEX TRAFFICKING IS A LARGE, sophisticated, underground economy, with its own networks, business models, and jargon. Criminals like the one who trafficked Ava are the successful entrepreneurs of the industry. They own multiple homes and drive expensive cars. At any one time, they may control dozens of prostitutes, sometimes trading them with affiliated traffickers in other parts of the country. They diversify across every segment of the market, from prostitution conducted along streets to discreet, “agency-level” procurement deals for wealthy and prominent johns who shield themselves behind third parties.
Ava’s trafficker controlled 30 women of different ethnicities, shapes, and hairstyles. He used a combination of charm, coercion, and physical assault to keep them in line. One night after a birthday party for one of the women, police responded to a call about an attempted robbery and shooting. When the police saw so many women and only one man in the house, the officers became suspicious—but could find no grounds to arrest anyone.
The next day, one of the women told Ava she wasn’t feeling well and needed to go to the hospital. Ava loaned her a cell phone so she could call for a ride home. Ava never saw the phone again. At the hospital, the woman told authorities her real problem: She was being trafficked and needed help. The phone became evidence in the case against the trafficker.
Six months later, police raided the house where Ava lived, arresting her, the other women, and the trafficker. Since she was recovering from invasive cosmetic surgery, police placed her in a segregated cell as a protection against infection. There she remained for six weeks: “It was the first time that my brain had freedom to think the way it wanted to.”
“It was the first time that my brain had freedom to think the way it wanted to.”
In jail, Ava began asking God to show her if He was real. He opened her eyes to see her situation: The trafficker claimed to care about her while beating her and crushing her sense of self-worth. One day as she lay on the skimpy jail mattress, a letter arrived from a friend. It contained a Bible verse, Jeremiah 29:11—“For I know the plans I have for you, says the Lord. Plans to prosper you and to harm you.”
Ava wasn’t sure what to make of it. Were there plans to harm her? She looked the verse up, and realized her friend had miscopied it. The actual verse reads “… not to harm you.” In that moment, she realized if she stayed with her trafficker she might share with her trafficker some of the affluent, glamorous life he portrayed to the world, but there would be harm.
She decided to take her life away from her trafficker and give it to God.
When she met with her lawyer, she pleaded to find a place where she could learn how “to be human.” That’s how she ended up at Valiant Hearts. Ava was baptized a year ago. Photos from after the service show Ava’s face stuck in a smile that, as she described it, almost covered her eyes.
Ava’s battle was not over. She had to sort through years of emotional damage. For three months after moving into the Valiant Hearts house, she was afraid to leave, only going to church or with others to the grocery store. She also had to unravel a financial and legal mess. Sex traffickers bind and exploit victims by using their identities to open businesses and bank accounts for laundering money. Ava learned about a house in California deeded in her name.
“It’s very strategically planned out,” Chavez said, “so that nothing ties back to [the trafficker]. And when the ladies come out … they have debt, tax evasion, criminal histories, bad credit, and bad relationships with banks.” Ava’s credit score was “about as low as it could get.” Banks turned her down five times for a checking account before she got one through a connection to someone who owned a bank.
WHEN THE PANDEMIC HIT and Ava withdrew, Chavez was worried. She demanded that Ava “just start talking.”
It started with tears, and what Ava later described as “word vomiting.” She began to see how in the absence of healthy routines and regular worship, she had fallen into old patterns of thought dictated by her trafficker: She’d never amount to anything, never be anything but a prostitute. Ava began to realize the extent to which the pandemic had become a trigger, but one she could counter with skills she had already learned in counseling.
Since then Ava has made progress. She’s completed the Valiant Hearts program. With her legal troubles mostly behind her, she is moving into her own apartment. She has a job with Savhera, a company that provides employment to victims of sexual exploitation. She is also starting college and has a 10-year plan to get a Ph.D. in clinical psychology, so she can “help more survivors like myself get deeper healing and understanding.”
“This will be the first time I’ve lived on my own literally my entire life. Woo-hooo! The Lord has shown off in this season, really showing miracles. But it’s also been a really tough season.”
—Paul McDonnold is a graduate of the World Journalism Institute mid-career course
New credit repair services have been launched by the expert team at Fresh Start Consumer Services. They work with clients in Warner Robins, GA and the surrounding areas.
New credit repair services have been launched by the expert team at Fresh Start Consumer Services. They work with clients in Warner Robins, GA and the surrounding areas.
Fresh Start Consumer Services has launched a new credit repair service for clients looking to improve their financial future. Interested parties can sign up for credit consultations, in-depth credit analysis, credit recommendations and more.
The newly launched services are designed to ensure clients can repair bad financial credit history, track their improvement campaign in measurable ways, and secure a better future for themselves and their family.
Clients can work with Fresh Start Consumer Services to clean up their past. This is achieved by working with the major credit bureaus and creditors to challenge the negative report items that affect the credit score.
Based in Warner Robins, GA, the expert team at Fresh Start Consumer Services is passionate about helping citizens to improve their credit score to give them more buying power. As a result of this, clients are able to secure more options in life.
The team understands that sometimes bad things happen to good people, and their services are designed to ensure that clients can get the most out of life. They also realize that a bad credit score can harm clients’ quality of life – and can be a difficult situation to get out of.
Fresh Start Consumer Services offer courses in credit repair and restoration, budget management, credit education and purchase assistance. Clients get easy access to their account 24/7 for live status updates on improvements, allowing them to fine-tune the management of their credit score.
Service options include personalized dispute options to fit each clients’ exact credit repair needs, an experienced case analyst and case advisor working personally with them throughout the process, custom dispute letters, and more.
For clients, there are a number of reasons to work with a credit repair specialist. Clients are able to secure significant savings on interest rates, attain better terms on loan products, and get access to the best credit card deals. They also gain access to more housing options.
The team states: “Fresh Start Consumer Services offers a unique combination of services that gives our clients the quality of life they deserve. We specialize in helping our clients achieve qualifying credit and the financial health they desire.”
Yes, early trade-ins are possible when you finance a vehicle. In fact, there’s no set time frame on trading in a car. Most dealers won’t take a trade-in that’s too fresh, though, and it’s best to wait until there’s equity in your vehicle before you try to trade it in.
What’s a Trade-In?
When you trade in a car, you’re essentially selling it to a dealership and financing something else from their lot, without the hassle of selling and buying with separate transactions. There are no hard-and-fast rules about how and where you have to trade in your vehicle.
However, it’s beneficial to shop around and see which dealers can give you the best price, but you shouldn’t just head to a car lot and ask what they’re willing to offer you. When the time comes, there are several steps you may want to take to get ready for the trade-in process, especially if you’re looking to trade in early before you’ve had the chance to close the equity gap.
Trading In Early and Equity
When you’re trading in a vehicle soon after you’ve financed it, you’re more likely to be in a negative equity position – owing more on your auto loan than the car is worth.
This is especially true if you financed a new vehicle, or a certified pre-owned car. Newer vehicles depreciate faster than used ones, which have typically already seen their biggest drop in value.
Depreciation is the loss of value over time and it can’t be stopped. It can be slowed, though. The best way to do this is by using a large down payment when you finance. This reduces the amount you have to borrow, and leaves you owing a price closer to what the car might cost after you drive it off the lot. New vehicles typically lose around 10% of their value as soon as they touch the road.
If you don’t have the equity to recoup your investment in a car, you have to make up that difference out of your own pocket. It’s much easier to trade in a vehicle that can pay for itself, but this isn’t always possible when you’re trying to do so early.
Preparing Your Early Trade-In
When you know that you’re starting with a deficit on your trade-in, it’s a good idea to be prepared to get the most you can. Clean the car thoroughly, both inside and out, and make sure to fix any minor damage that may have occurred in the short time since you took out your loan.
Getting the vehicle detailed and fixing major mechanical issues isn’t likely to result in a worthwhile increase to the cash in your pocket, so don’t go overboard. Remember, you want to make as much money on this trade as you can, and it’s probably cheaper for the dealership to fix any large issues.
Before you set foot in a dealer to get your trade-in appraised, it’s a good idea to know approximately how much your car is worth. You can find this out by going to online valuation sites such as Kelley Blue Book or NADAguides. Be sure to be honest when you’re inputting information, since it’s the only way to get an accurate estimate of possible value.
Shopping for Trade-In Values
Once you have the estimates (which you should print or save to your phone), it’s time to take your trade-in to get looked at. Taking it to a few different dealerships is a good way to find the best deal you can.
We recommend taking your early trade-in to at least three different dealers, making sure at least one of them is a franchised dealership that sells your vehicle’s brand. A franchised dealer that sells your car’s brand may be more likely to offer a higher price.
Depending on your credit situation, it’s likely a good idea to ensure you’re trying to trade in your vehicle to a dealership that can work with your situation, especially if you have poor credit. And that’s where Auto Credit Express can come in handy.
We have a nationwide network of special finance dealers that are signed up with subprime lenders who can help people in many different types of credit situations, including bad credit, no credit, and even bankruptcy.
The process is easy to get started – just fill out our free auto loan request form. We’ll match you to a local dealership that can get you started on the financing you need after your early trade-in.